Q. Can the entire gain from sale be excluded from capital gains tax on my federal income tax return since it was first my primary residence before I rented it out?
A. No. The gain will be prorated between the residence time and the rental time. Only "non qualified use" after 2008 is prorated. Deprecation since May 6, 1997 must still be recaptured, even in a home sale exclusion situation. The recaptured depreciation is not included as a part of the exclusion calculation.
When you enter the home sale in TurboTax (TT), and follow the interview carefully, TT completes the "Home sale work sheet" (see screen shot in other reply) to handle that complex calculation of the partial home sale exclusion, non qualified (rental) use capital gain and depreciation recapture.
